Technology, Price-Stickiness

I have been reading much transhumanism lately, as is evident from my blogs. So I began to reflect on the nature of technology in capitalist economies.

Keynes argued that prices in the economy were “sticky” in the sense that they very easily moved upward and very stubbornly moved downward. Petrol prices is the example a popular textbook gives because petrol-pump prices do not change every time oil prices change. Similarly holiday prices and standard hotel rates are fixed for months. Sticky prices are slow to change in response to changes in supply and demand. As a result there is, at least temporarily, a disequilibrium in the market. The causes of stickiness, Keynes argued, included mainly menu costs, imperfect information, consumers’ dislike of frequent price changes and long term contracts with fixed prices. The principle behind all this is that “prices change only when the cost of leaving them unchanged exceeds the expense of adjusting them.”

In financial markets, prices move all the time because the cost of quoting the wrong price can be huge. In other industries, the penalty may be much less severe. Small disequilibria, say, the pricing of hotel rooms will not make much difference. Hotel prices are often sticky.

Likewise, technologies are slow to change in response to changes in government policy. This can be thought of as some kind of disequilibrium, if you imagine that on one axis you have government policy and technology on another. They disequilibrate when technology is not in kilter with current government policy. This happens all the time with new patents and copyright protection laws. Script-kiddies and hackers are most certainly going to find their way around the protections, and the policies themselves are irrelevant to the development of these hacks. It actually produces an even greater incentive to develop hacks.

As many libertarian transhumanists have argued, once human-enhancement technology is available on the market, you cannot make it go away. There never was a technology that the human race ever abandoned wholesale, even the hydrogen bomb or other weapons of mass destruction with the power to wipe out all life on Earth. You might eventually be able to ban the production of H-bombs, but it would take a long time to kill everybody who knew how to make one or eliminate all blueprints and specifications for the design. While scientists discussed the possibility of a ban on recombinant DNA research at the Asilomar Conference, they knew it was not going to happen. Even if overt public funding for such research was cut off, covert private funding would continue to flow from various interested parties, as has happened with even disproved technologies like cold fusion.

But prices are often sticky because wages are sticky. That is, when petrol prices increase, and demand remains the same, wages generally increase. But when petrol prices begin to fall, it’s difficult for wages to fall as well. So wages stay about the same, and prices stay the same too. Wages are prices trend upward and very seldom trend downward. This is the Keynesian explanation for inflation.

There is something quite like “technology inflation”. It’s what happens when the general level of technology rises, in the sense of a technological revolution. Unlike price-inflation, rooted in price-stickiness, technology-inflation seems rooted in the nature of the business cycle itself. It’s an increase in the ratio between labor and capital. When capital investment increases the demand for labor-saving capital technology becomes sticky. Once we have upgraded our capital equipment why would we want to downgrade? So there is an upward-leaning trend for increasing capital technologies.

But with price-inflation, unless unchecked, eventually goes bust. This could happen with technology as well if technology increases productivity without increasing wages. If wages do not increase as productivity increases, demand slows down, and the capital investment which fueled the technology-inflation goes bust. The economy would come to screeching halt. Or perhaps, as John Stuart Mill suggests, we would land happily into a stationary state.